Fiscal sustainability in cee countries ? the case of the Czech Republic, Hungary and Poland
DOI:
https://doi.org/10.12775/EQUIL.2015.013Keywords:
fiscal sustainability, monetary and fiscal dominance, primary balance, debt, cointegrationAbstract
The aim of the study is to assess fiscal sustainability in the Czech Republic, Hungary and Poland and to test for existence of fiscal dominance in these countries in the context of the fiscal theory of the price level. The empirical study is conducted using unit root tests and cointegration analysis with possible structural breaks. The approach is consistent with so called backward-looking approach for fiscal dominance testing proposed by Bohn (1998). The results suggest that in the Czech Republic and Poland fiscal dominance prevailed in the analyzed period, while in Hungary ? monetary dominance. The result for Hungary may be caused, however, by a one-time reduction in debt resulting from changes in pension system.
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References
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Komulainen, T., Pirttilä, J.(2002). Fiscal explanations for inflation: Any evidence from transition economies?. Economics of Planning, 35, 293-316.
Leeper, E. (1991), Equilibria under active and passive monetary policies. Journal of Monetary Economics, 27, 129-147. http://dx.doi.org/10.1016/0304-3932(91)90007-B
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Perron, P. (1997). Further evidence on breaking trend functions in macroeconomic variables, Journal of Econometrics, 80(2), 355-385. http://dx.doi.org/10.1016/S0304-4076(97)00049-3
Sims, C. (1994). A simple model for the determination of the price level and the interaction of monetary and fiscal policy. Economic Theory, 4, 381-399. http://dx.doi.org/10.1007/BF01215378
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Stanek, P. (2014). Public debt sustainability and the participation of the new member states in the euro area. Poznań University of Economics Review, 14(4), 22-37.
Stoian, A., Câmpeanu, E. (2010). Fiscal policy reaction in the short term for assessing fiscal sustainability in the long run in Central and Eastern European countries. Czech Journal of Economics and Finance, 60(6), 501-518.
Woodford, M. (1994). Monetary policy and price level determinacy in a cash-in-advance economy. Economic Theory, 4, 345-389. http://dx.doi.org/10.1007/BF01215377
Woodford, M. (1995). Price level determinacy without control of a monetary aggregate. Carnegie-Rochester Series on Public Policy, 43(1), 1-46. http://dx.doi.org/10.1016/0167-2231(95)00038-0
Woodford, M. (1996). Control of the public debt: a requirement for price stability?. NBER Working Paper 5684.
Woodford, M. (1998). Comment on Cochrane. NBER Macroeconomics Annual, MIT Press.
Woodford, M. (2001). Fiscal requirement for price stability. Journal of Money, Credit, and Banking, 33(3), 669-728. http://dx.doi.org/10.2307/2673890
Zivot, E., Andrews D. (1992). Further evidence on the great crash, the oil-price shock and the unit root hypothesis. Journal of Business and Economic Statistics, 10(3), 251-270. http://dx.doi.org/10.2307/1391541
Bajo-Rubio, O., Díaz-Roldán, C., Esteve, V. (2009). Deficit sustainability and inflation in EMU: An analysis from the Fiscal Theory of the Price Level, European Journal of Political Economy. 25(4), 525-539.
Bajo-Rubio, O., Díaz-Roldán, C., Esteve, V. (2014). Deficit sustainability, and monetary versus fiscal dominance: The case of Spain, 1850-2000. Journal of Policy Modelling, 36(5), 924-937. http://dx.doi.org/10.1016/j.jpolmod.2014.07.004
Baldi, G., Staehr, K. (2013). The European debt crisis and fiscal reaction functions in Europe 2000-2012. DIW Berlin Discussion Papers, 1295.
Bohn, H. (1998). The behavior of U.S. debt and deficits. Quarterly Journal of Economics, 113, 949-963.
Bohn, H. (2007). Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint?. Journal of Monetary Economics, 54, 1837-47. http://dx.doi.org/10.1016/j.jmoneco.2006.12.012
Canzoneri, M.B., Cumby, R.E., Diba, B.T. (2001). Is the price level determined by the needs of fiscal solvency?. American Economic Review, 91, 1221-1238. http://dx.doi.org/10.1257/aer.91.5.1221
Christiano, L., Fitzgerald, T. (2000). Understanding the fiscal theory of the price level. NBER Working Paper 7668.
Cochrane, J. (2000). Money as stock: price level determination with no money demand. NBER Working Paper 7498.
Cochrane, J. (2001), Long-term debt and optimal policy in the fiscal theory of the price level. Econometrica, 69(1), 69-116. http://dx.doi.org/10.1111/1468-0262.00179
European Central Bank (2010). The impact of the financial crisis on the central and eastern European countries. ECB Monthly Bulletin, July 2010.
Franta, M. (2012). Macroeconomic effects of fiscal policy in the Czech Republic: Evidence based on various identification approaches in a VAR framework. Czech National Bank Working Paper 13/2012.
Gregory, A., Hansen B. (1996). Residual-based tests for cointegration in models with regime shifts. Journal of Econometrics, 70, 99-126. http://dx.doi.org/10.1016/0304-4076(69)41685-7
Haug, A., Jędrzejowicz, T., Sznajderska, A. (2013). Combining monetary and fiscal policy in an SVAR for a small open economy. National Bank of Poland Working Paper 168.
International Monetary Fund (2013). Czech Republic, IMF Country Report No. 13/243.
Komulainen, T., Pirttilä, J.(2002). Fiscal explanations for inflation: Any evidence from transition economies?. Economics of Planning, 35, 293-316.
Leeper, E. (1991), Equilibria under active and passive monetary policies. Journal of Monetary Economics, 27, 129-147. http://dx.doi.org/10.1016/0304-3932(91)90007-B
Legrenzi, G., Milas, C. (2012). Debt sustainability and financial crises: Evidence from the GIIPS, CESifo Working Paper 3594.
Llorca, M., Redzepagic, S. (2008). Debt sustainability in the EU New Member States: empirical evidence from a panel of eight Central and East European countries. Post-Communist Economies, 20(2), 159-172. http://dx.doi.org/10.1080/14631370802018882
Magyar Nemzeti Bank (2012). Public Finance Review, May 2012.
Perron, P. (1997). Further evidence on breaking trend functions in macroeconomic variables, Journal of Econometrics, 80(2), 355-385. http://dx.doi.org/10.1016/S0304-4076(97)00049-3
Sims, C. (1994). A simple model for the determination of the price level and the interaction of monetary and fiscal policy. Economic Theory, 4, 381-399. http://dx.doi.org/10.1007/BF01215378
Sims, C. (1999). Fiscal consequences for Mexico of adopting the dollar. mimeo.
Stanek, P. (2014). Public debt sustainability and the participation of the new member states in the euro area. Poznań University of Economics Review, 14(4), 22-37.
Stoian, A., Câmpeanu, E. (2010). Fiscal policy reaction in the short term for assessing fiscal sustainability in the long run in Central and Eastern European countries. Czech Journal of Economics and Finance, 60(6), 501-518.
Woodford, M. (1994). Monetary policy and price level determinacy in a cash-in-advance economy. Economic Theory, 4, 345-389. http://dx.doi.org/10.1007/BF01215377
Woodford, M. (1995). Price level determinacy without control of a monetary aggregate. Carnegie-Rochester Series on Public Policy, 43(1), 1-46. http://dx.doi.org/10.1016/0167-2231(95)00038-0
Woodford, M. (1996). Control of the public debt: a requirement for price stability?. NBER Working Paper 5684.
Woodford, M. (1998). Comment on Cochrane. NBER Macroeconomics Annual, MIT Press.
Woodford, M. (2001). Fiscal requirement for price stability. Journal of Money, Credit, and Banking, 33(3), 669-728. http://dx.doi.org/10.2307/2673890
Zivot, E., Andrews D. (1992). Further evidence on the great crash, the oil-price shock and the unit root hypothesis. Journal of Business and Economic Statistics, 10(3), 251-270. http://dx.doi.org/10.2307/1391541
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Published
2015-06-30
How to Cite
Mackiewicz-Łyziak, J. (2015). Fiscal sustainability in cee countries ? the case of the Czech Republic, Hungary and Poland. Equilibrium. Quarterly Journal of Economics and Economic Policy, 10(2), 53–71. https://doi.org/10.12775/EQUIL.2015.013
Issue
Section
Determinants of fiscal policy effectiveness
